Transcript

Brazil’s economy is in the middle of a strange miracle, as economic stability emerges out of the recent politically tumultuous years. Latin American investment bank BTG Pactual recently acted as joint bookrunner for infrastructure company CCR, in the largest offering in Brazil since April 2015; vice chairman of the board Huw Jenkins explains what this represents about the country’s economic recovery. He also talks through other infrastructure deals with toll road operator EcoRodovias and water company Odebrecht Ambiental; as well as retailer Lojas Americanas and retail player BR Malls.

World Finance: I’m with Huw Jenkins from Latin American investment bank BTG Pactual, and we’ve been talking about how equity activity is finally back on the books for Brazil.

You recently acted as joint bookrunner for the largest offering in Brazil since April 2015 – tell me more.

Huw Jenkins: CCR is an infrastructure company focused in particular on transportation and roads. It’s been an extremely successful deployer of capital within that space in Brazil.

And I think as I mentioned earlier, with the development of a new economic paradigm – we’ve moved out of a recession, started to see some recovery, and a kind of new Brazil. If we get the wind at our back with a good election in 2018, some economic recovery, some recovery in jobs, then we could see a very attractive environment for Brazil.

And especially for an infrastructure company like CCR, which tripled its value over the last 10 years, and is in a position to capture the benefits of a declining interest rate environment, improved government regulation for concessions and infrastructure. And an improved environment internationally, in terms of the way in which investors look at Brazil.

I think that everyone’s always seen Brazil as a country that was short of capital investment. That there was insufficient roads, ports, airports, telecommunications, power generation. And therefore the opportunity to attract foreign capital, because of the relatively high returns in those sectors in Brazil, has always been strong.

World Finance: You were also involved in two large retail transactions; investors are confident this is an area of growth?

Huw Jenkins: I think you might be thinking of BR Malls and Lojas Americanas. Lojas Americanas is definitely a retailer, and clearly benefits from the view that consumer demand is recovering in Brazil, and we will see an improvement in that sector. And indeed, just in the last week we’ve seen one of the largest transactions executed in Brazil – the IPO of Carrefour Brazil. Which reinforces investor appetite for the consumer sector.

The other transaction that we were involved in – BR Malls – is more of a real estate play. Where again, people are looking to capture the benefits of a declining interest rate environment, and what that will do to real estate valuations and the valuations for BR Malls.

World Finance: You’ve also enjoyed strong momentum in your M&A activity in the last couple of years; what have been the most interesting transactions you’ve been part of?

Huw Jenkins: BTG Pactual as a domestic player tends to focus on advising domestic companies that are looking for international buyers. So we advised Odebrecht Ambiental, the major water company in Brazil, which wound up being acquired by Brookfield of Canada, an infrastructure investor.

We acted for EcoRodovias, which is another toll road operator in Brazil, which we sold to Gavio, the Italian operator. And that’s another example of the interest in the infrastructure sector.

We’ve also been involved in transactions in other sectors: real estate and healthcare. But probably still I would say the strongest interest is in infrastructure.

World Finance: What would you see as the future for investment in Brazil?

Huw Jenkins: Having gone through a period – perhaps 10 years ago – where people were over-optimistic, people then became extremely pessimistic. And somebody once told me a story about Brazil, and said something along the lines of, ‘It’s never as good as they tell you, and it’s never as bad as they tell you.’

And I think Brazil is now entering a phase where, it’s going to surprise to the upside. Even though there’s been this political uncertainty. As I mentioned before there’s been this kind of strange miracle, where we’ve wound up passing some very constructive legislation, despite the weakness of the political groups in Brazil. And I think that lays the foundations for the fundamentals of very strong resources base, very large and growing population, relatively underlevered economy where there’s relatively low levels of domestic credit penetration. All of that I think can produce very attractive returns for investors over the next five, 10 years.